VMware Walks Away From Virtustream Joint Venture With EMC
Cloud software company VMware says it will not participate in a previously announced cloud services joint venture called Virtustream with its parent company EMC. — Shares of VMware initially rose but later fell after VMware announced …
Context & Ripple Effects
The Virtustream structure had been in flux since EMC and VMware spun the company out as a joint venture in October, and by late November Reuters reported EMC retaining a majority stake with VMware taking only a minority. That same week, Re/code reported EMC and VMware shareholders demanding changes to the Dell buyout deal, explicitly including shutting down Virtustream. VMware's walk-away lands squarely on that pressure point.
First-order effects
- VMware exits the venture entirely, leaving EMC to carry Virtustream's cloud-services bet alone rather than diluting VMware's equity into it — the outcome shareholders pushing for Virtustream's shutdown were asking for.
- The move removes one source of entanglement between VMware and its parent at exactly the moment VMware's standalone value is under scrutiny, following the 10% share drop after preliminary Q3 sales of $1.67B post-Dell-EMC announcement.
Second-order effects
- EMC must now fund Virtustream's enterprise cloud build-out off its own balance sheet, while VMware is freed to position itself as a neutral software layer that runs on other providers' clouds rather than competing inside its own parent's cloud.
- Dell, absorbing EMC in the pending buyout, inherits full ownership of Virtustream's risk without VMware's participation softening it — sharpening the question of what the combined entity's cloud strategy actually is.
Third-order effects
- If the pattern holds, VMware's future lies in portability across public clouds rather than owning infrastructure — a direction borne out less than a year later when VMware partnered with Amazon to bring its infrastructure software to AWS, the opposite path from a parent-owned cloud.
- For enterprise vendors generally, the episode argues against hybrid JV structures where a subsidiary is asked to subsidize its parent's infrastructure ambitions; capital markets increasingly reward clean separation of software economics from hardware capex.
The trend: Enterprise software companies are decoupling from parent-owned cloud infrastructure plays and aligning with hyperscalers instead, with shareholder pressure during the Dell-EMC buyout acting as an accelerant.